Small and Medium Enterprises (SMEs) play a pivotal role in driving economic growth and embracing an Initial Public Offering (IPO) can be a transformative step for these businesses. Let’s delve into the benefits SMEs can reap by taking the IPO route.
1. Functional Benefits:
Easy Access to Capital: Going public opens many financing opportunities, allowing SMEs to raise equity capital. This provides a robust injection of funds and offers favorable terms for cost-effective capital acquisition.
Reduced Cost of Borrowing: Listing enhances a company’s credit rating, translating into reduced borrowing costs. A higher credit standing makes it easier for SMEs to secure loans at more favourable interest rates, fortifying their financial stability.
Stakeholders Comfort: Listing provides stakeholders, including customers, lenders, and creditors, with a sense of assurance. This heightened confidence contributes to an augmented order book, improved business terms, and more favorable contractual agreements.
2. Value Creation:
Unlocking Value: For unlisted companies, the true value is often obscured. IPOs unlock this value, turning shares into a versatile currency for purposes such as mergers and acquisitions (M&A), Employee Stock Ownership Plans (ESOPs), and collateral.
Currency Value: Listed shares gain market-established value, transforming them into a potent currency. This currency can be utilized for various financial transactions, making listed securities a viable M&A currency.
3. Tax Benefits:
No Tax on Equity Infusion: Equity infusion in a listed company is not subject to tax, offering a significant advantage over unlisted counterparts. This tax exemption fosters a conducive environment for equity investment.
No Tax on Distressed Business Purchase: Acquiring shares of an unlisted company below its net worth usually incurs tax. However, if the shares are listed, this tax incidence is mitigated, relieving investors in distressed business acquisitions.
No Tax on Buyback of Shares: Listed companies enjoy an exemption from the tax on share buybacks. This encourages a more flexible financial strategy for SMEs considering a buyback of shares.
4. Other Benefits:
Visibility / Profile Building: Listing on the stock exchange propels a company into the spotlight, garnering recognition from investors and analysts. This increased visibility can attract more attention, potentially enhancing market value.
Increased Corporate Governance: The IPO journey often prompts SMEs to fortify their internal governance systems, fostering better control and corporate governance. This emphasis on governance contributes to the long-term sustainability of the business.
The decision to go public through an SME IPO is not just a financial transaction but a strategic move that unlocks myriad benefits. From financial flexibility to enhanced corporate governance, SMEs can chart a path to lasting prosperity by embracing the opportunities presented by the capital market.
Are you thinking about your SME’s IPO? Let us collaborate and make your IPO journey super smooth and easy.
ipocare #smeipo #ipo #initialpublicoffering #cabmaggarwal #abmcapitaloptions #FundRaising #RaiseFundsEasily
Recent Comments